Stocks & Equities

Cineplex Reopens: Will its Stock Rebound?

Last month, I’d discussed whether Cineplex (TSX:CGX) was headed toward bankruptcy. The COVID-19 pandemic forced theatres across North America to close their doors for the entirety of the spring season. When the summer arrived, theatre companies were forced to adjust to chaotic conditions and take a regional approach. Shares of Cineplex, the largest movie theatre operator in Canada, have plunged 76% in 2020 as of close on August 7.

Today, I want to look at how conditions may change for Cineplex for the rest of 2020.

Cineplex has started its phased reopening

In July, Ontario allowed for most regions to enter phase three of its reopening plan. Unfortunately, movie theatres were still left in a precarious position. The province stipulated that theatres could only allow up to 50 patrons per individual screen. Cineplex and other operators argued that this was not financially feasible. The company hoped to lobby the government for an exception for this industry.

On July 31, Cineplex unveiled its own phased reopening. This began with 25 locations opening on July 31, each adhering to the 50 individuals per screen regulation. The company expects that most its locations will open in the next several weeks. Ontario, Canada’s most populous province, was the last to reopen theatres to the public.

Will this be enough to give Cineplex a boost in the latter half of 2020? CLICK for complete article

If the “Market” Never Goes Down, The System Is Doomed

The reliance on “good news” narratives dooms our financial system and economy to a death spiral once reality breaks through the induced euphoria.
“Markets” that never go down aren’t markets, they’re signaling mechanisms of the Powers That Be. Markets are fundamentally clearing houses of information on price, demand, sentiment, expectations and so on–factual data on supply and demand, shipping costs, cost of credit, etc.–and reflections of trader and consumer emotions and psychology.
If markets are never allowed to go down, the information clearing house has been effectively shut down. Whatever information leaks out has been edited to fit the prevailing narrative, which in this moment is “central banks will never let markets go down ever again, so jump in and ride the guaranteed Bull to easy gains.”
The past 12 years offer ample evidence for this narrative: every dip draws a near-instantaneous monetary-policy response that reverse the dip and gooses markets higher.
That permanent monetary intervention distorts markets doesn’t matter to participants. Who cares if markets have become “markets,” simulacra of real markets that are now nothing but signaling mechanisms that all is well so buy, buy, buy? If gains are essentially guaranteed, who cares that markets are not longer information clearing houses?
Indeed. There’s no reason to care until the fatal spiral downward surprises us all. Here’s an analogy of what happens when real information gets edited to fit a convenient narrative.
Unfortunately, the patient has cancer which is starting to metastasize, i.e. spread to other organs in the body. But unbeknownst to the patient, this accurate information is considered “bad news,” so the test results and other information is carefully edited to show the cancer is actually shrinking–the exact opposite of what the actual facts reflect. The patient is naturally delighted with this false data because it appears he’s on the mend and doesn’t need any surgery or other drastic treatments.
If participants don’t have information that reflects actual conditions, they cannot help but make disastrous decisions. Falsified or heavily edited information is misleading, and so all decisions made on the assumption this information is accurate will be fatally skewed.
Symptoms of the fatal spread of the disease are masked by stimulants that not only mask the spread but give the patient a sense of euphoric power and supreme confidence.
Imagine the patient’s terrible dismay when symptoms break through the euphoria and he learns his cancer is now terminal. Increasing the tragedy is his awareness that had the authorities in charge of his care given him the real-world data instead of the carefully edited “happy story” version, treatments could have been undertaken that might have extended his life. Now those options have been lost forever.
That’s the situation in our economy and financial system. The information cleared in markets has been suppressed, distorted and edited for 12 long years of permanent and ever-increasing monetary interventions, as the “doses” of intervention required to maintain the cocaine-like euphoria and supreme confidence in central bank manipulation of “markets” so they always signal the “good news” of guaranteed gains ratchets higher on every intrusion of reality.
The reliance on “good news” narratives dooms our financial system and economy to a death spiral once reality breaks through the induced euphoria. Our last chances to clear the financial cancers eating away at our economy are slipping away forever, masked by the “market’s” cocaine-like euphoria and supreme confidence in central-bank guaranteed gains.
If the stock market is never allowed to go down, this is the equivalent of telling the cancer-riddled patient that their cancer has disappeared, even as the disease is leading inexorably to the patient’s needless demise.

Seth Klarman: ‘Little Evidence Of Thought’ Behind Stock Market Rebound

Billionaire hedge fund value investor Seth Klarman is extremely skeptical of the stock market rebound off the March lows.

In his recent second-quarter letter to investors Klarman, who manages the $30 billion hedge fund Baupost, said a combination of faulty investor psychology and an enabling Federal Reserve are driving stock prices higher while the real economy sputters.

The SPDR S&P 500 ETF Trust is now up 48.6% since March 23, yet the economy has lost more than 1 million jobs per week for 20 straight weeks. S&P 500 earnings are down 35.7% so far in the second quarter, while revenue is down 9.6%.

Psychology And Economics: In his letter, Klarman said investing is a combination of psychology and economics, and the two factors have diverged significantly in the past few months. He said investors seem to be relying on some vague idea that the US economy is “opening up” as a green light to buy stocks without even considering valuations.

“There is little evidence of thought as to whether the price of a security already reflects current and projected future news flow, or whether the opening up of the economy might be premature, a sign not of strength, but of impatience, lack of resolve, and poor judgment,” Klarman said.

Since 1982, Klarman has been one of the most consistent investors in the market, delivering gains in 31 of his fund’s first 34 years.

Fed To Blame: Klarman is known for his long-term, value-oriented investment style. Because he rarely comments publicly or grants interviews, followers must piece together his philosophy based on tidbits of insight he has provided throughout the years…CLICK for complete article

Understanding the Disconnect Between Consumers and the Stock Market

Check out  this interesting infographic from our friends over at Visual Capitalist.

“Bubbles are far more dangerous when they are fuelled by debt”

 

So please don’t waste my time by telling me Company X is such a fantastic investment proposition because its stock price has gone soaring higher. Tell me what the something special it does or what particular unique service is has proven it can deliver, makes it so valuable. Explain to me the rationale for it being able to generate secure cashflows, maintain orders through a worse case global trade scenario, and how it’s not subject to competitive threats likely to paradigm shift it into oblivion in a few months time. Don’t tell me to buy it because its going up because Robin Hood accounts are buying it…. Read More

The Odds Are Stacked Against Investors In A Post-Covid Economy

Since the March 23rd lows, retail investors have jumped into the equity market with little concern about the potential risk. The “Pavlovian” response to the Fed’s massive monetary interventions has pushed “risk-taking” to extremes. Unfortunately, the odds are stacked against investors in a post-COVID economy.

In a recent newsletter, we discussed our process of “taking profits” in positions that had reached more extreme overbought conditions. As is usual in a market where “momentum” is in vogue, we received numerous emails about the “folly” of selling our technology holdings.

It Isn’t Folly.

It is a usual practice of mitigating risk to protect capital for our long-term investment cycle. Interestingly, while there is little doubt that patience is a virtue for investors, exercising prudence is equally important. Despite the basic math, and historical evidence proving its usefulness, investors typically ignore prudence, especially when it is required most. The “siren’s song” of a momentum-driven market fueled by a “speculative greed” is inevitably too compelling for many investors…CLICK for complete article